Royal Mail hikes 1st class stamp 30 percent in runup to privatisation

By IBT Staff Reporter On 03/27/12 AT 8:56 AM

State-owned Royal Mail Group hiked the price of a first-class stamp by an inflation-busting 30 percent on Tuesday in the latest move towards a privatisation now expected to take place in the first quarter of 2014.

Fresh from new price-setting powers outlined by industry regulator Ofcom earlier on Tuesday, Royal Mail said that from April 30 the price for a first class letter would rise from 46 pence to 60p.

A second-class stamp for a standard letter will go up to 50p from 36p, below a 55p cap put in place by Ofcom. A large letter stamp up to 100 grams will rise from 75p to 90p for first class and from 58p to 69p for second class.

The rise comes as a monthly survey from polling company YouGov showed inflation expectations eased to 2.7 percent this month from 2.8 percent in February. Expectations for annual inflation over the next five to 10 years were stable at 3.4 percent.

We know how hard it is for households and businesses when our economy is as tough as it is now. No-one likes to raise prices in the current economic climate but, regretfully, we have no option, said Royal Mail Chief Executive Moya Greene, adding its prices are among the best value in Europe.

The Ofcom approach to regulation is incredibly significant. This gives the company the commercial freedom that we need to have in order to restore the financials and to secure the universal service for the UK.

The news follows a decision by the European Commission last Wednesday to approve government plans to take on Royal Mail's hefty pension fund in a bid to improve its safety for employees, and attract private sector investment to the business.

Greene told Reuters Britain had taken all of the big steps necessary to pave the way to for outside capital interest.

I don't think that it is impossible that we could be in a deal mode in 2013, but personally I think it is probably more likely to be the first quarter in 2014, she said.

My preference, and I believe the government's preference, is a float. The postal services act contemplates a full sale of the company but we have to keep our options open as we move further down the path in that process.

In the six months to September, Royal Mail more than trebled overall operating profit to 67 million pounds ($106.8 million) as its European and British express parcel service GLS, and its post office branch network offset the losses at its letters and parcels division.

PRICING POWER

Earlier on Tuesday, Ofcom had given Royal Mail new price-setting powers as part of a seven-year framework designed to protect the universal postal service the firm delivers at a loss amid declining volumes and sales. Royal Mail said the changes were vital to making the service sustainable.

The universal service agreement ensures UK consumers get a universally-priced, affordable postal service, six days a week. Royal Mail made a 41 million pounds operating loss on letters and parcels in the six months to September 25.

In the last four years it has made a loss on its core mail of almost 1 billion pounds. Mail volumes have fallen by 25 percent in six years and are expected to decline by about 5 percent a year for the foreseeable future.

Huge changes are affecting the postal industry, particularly the decline in postal volumes as consumers and businesses switch to other means of communications such as text, email and online services, Ofcom said in a statement.

Ofcom said it retained the ability to intervene if the new regime did not work.

It added that Royal Mail must still provide competitors with access to its delivery network but will be able to set a wholesale price for doing so, although this will be subject to rules regarding the margin between its wholesale and retail prices.

Last week, Britain's second largest postal firm TNT Post said it is to trial deliveries in west London in April as it steps up ambitions to rival Royal Mail as the UK's postal provider.